Despite the apparent opening of the door for foreigners to engage directly in retail trading in Myanmar under the Myanmar Investment Commission (MIC) Notification No 49 of 2014, in practice this door was still closed to foreigners in the new car sales sector. With limited exceptions (discussed below), foreigners could not, even on the basis of Notification 49: (i) import new cars (ii) register new cars in their name (iii) sell those cars or (iv) own and operate a new car showroom. These restrictions are a mix of law and Government policy.
However, further liberalisation steps have been taken by the Government, notably in Ministry of Commerce (MoC) Notification 20 of March 2015 relating to the new car sector. These are summarised below, however note that there are still some areas of uncertainty in the rules set out in Notification 20 and we are in the process of trying to obtain clarification from the MoC at the present time on behalf of interested clients.
Up to now, the ways that foreign car manufacturers and their international distributors have been able to do business in Myanmar include:
- entering into an agreement with a business representative such as a Myanmar citizen or 100% Myanmar-owned company licensed to import and distribute/sell the cars; or
- establishing a 100% foreign-owned services company (ServiceCo) and entering into an agreement with a local car importer/seller under which ServiceCo provides all the services that the importer/seller needs to operate a business
- applying to the MIC for an investment permit under the Foreign Investment Law of 2012 (FIL)
Under the first model, the Myanmar distributor buys the cars from the foreign manufacturer outside Myanmar and brings them into Myanmar under an import licence on a ‘consignment’ basis for sale to the public. The foreign party does not participate in the import or trading of the cars directly. This model puts a strain on local companies to find the upfront finance for this type of business, which has increased manifold since 2011.
The second model has become popular over the last couple of years, and has been permitted by the MoC as a way to bring foreign levels of quality and services to the new car sector, in order to improve the service to customers – prior to this, cars were generally sold for cash, with no warranty, little or no service assistance and basic back-up. The foreign services company can fill these gaps and improve the service to customers without having any direct involvement in the import, distribution and sales process which up to now has had to be done by a locally-owned company.
Under the FIL, the MIC can grant an investor a in investment permit which includes the right to export goods produced by investor’s manufacturing business and also to import machinery, equipment, instruments, machinery components, spare parts and materials required for use during the period of construction of business. This type of permit is aimed at companies that wish to manufacture or assemble cars in Myanmar, but we have heard that one major manufacturer obtained a MIC permit for a new car distribution operation with a local partner without any such commitment.
Another option to avoid a restriction on import and trading by foreigners is to invest under the Myanmar Special Economic Zone Law of 2014. SEZs have not been constructed yet, however, the management committee of Thilawa SEZ issued Instruction No.02/2015 permitted export, import, wholesale and retail subject to some conditions. However, the instruction does not allow trading of cars or motorcycles in Myanmar – the objective is clearly for foreign companies to produce cars for export to qualify for the benefits (including tax exemptions and reliefs).
Notification 20 now appears to allow foreign car companies to establish a joint venture company under the Myanmar Companies Act with its local partner (which would generally be an existing car importer/distributor). No minimum shareholding requirements have been set for local partners and this JVCo can import and distribute in retail automobiles through a showroom which is owned and operated by the JVCo itself. It should be noted that the JVCo cannot carry out wholesale sales of new cars. Currently, no JVCo has been formed under Notification 20; however, we know at least one foreign car manufacturer that is in the process of establishing such a JVCo with a Myanmar partner.
There are 4 steps to establish a JVC under Notification 20:
- Company registration with DICA;
- Export/import registration with MoC;
- Obtaining a certificate of a business representative with MoC; and
- Certificate of opening a showroom with MoC.
The Notification goes on to provide a number of guidelines to be followed including:
- Vehicles imported in order to sell them in the show room must be brand new (either the year of arrival in Myanmar or the year prior to that – currently the 2014/15 models); the vehicles must be left-hand drive.
- The Myanmar joint venture company must be officially appointed as exclusive distributor of brand new motor vehicles by the foreign manufacturer or by its regional office.
- The show room must be set up and kept to proper standards.
- The Myanmar company must have the necessary insurances for the imported brand new vehicles, must be able to sell spare parts, and must be able to establish a work shop for after-sales services.
- Motor vehicles to be sold in the show room may be imported on consignment by letter of credit (LC) or telegraphic transfer (TT).
- Up to 300 vehicles may be imported in one consignment. When a certain number of cars from a consignment are sold, the JVCo will be able to import more cars. If cars are not sold within 2 years, they must be sent back to their country of origin.
- The imported vehicles must be kept in the show room or warehouse and they must not be sold in other places except the show room. They may not be used on the roads before being sold.
- A deposit of 100,000 USD must be placed in a bank account as a guarantee of the company opening the show room; the bank account may be opened with any bank authorized to open foreign currency accounts.
- After the business of importing motor vehicles on consignment is terminated in accordance with the regulations, the deposited 100,000 USD may be reimbursed after sale, remittances, accounts balance clearing or accounts clearing have been done.
Despite a significant level of progress in sales sector in Myanmar, there is still some uncertainty related to foreign investors’ rights on export/import and trading generally. Moreover, laws, regulations and government policy are constantly changing. Therefore, we recommend foreign companies to seek assistance from local advisers and to meet with relevant government organizations to discover current policy before considering establishing a business in Myanmar.
* The information contained in this legal update is provided for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.